Treasury debt sinks on data; stocks, dollar up

By Daniel Bases

NEW YORK (BestGrowthStock) – A rise in U.S. consumer sentiment in December prompted investors to sell off benchmark U.S. debt on Friday on expectations the economy will continue to grow, but U.S. stocks (Read more about the stock market today. ) rose modestly on the news.

U.S. data showed consumer sentiment rose more than expected in early December to the highest level in six months, according to the Thomson Reuters/University of Michigan survey, while the government said the country’s trade deficit shrank much more than expected in October.

Early strength in the U.S. dollar, which put downward pressure on commodity prices, eroded after comments from European Central Bank President Jean-Claude Trichet supported the euro.

The dumping of U.S. Treasury debt caps off a week of relatively aggressive selling that drove the benchmark 10-year note’s yield to a six-month high, and marked its biggest weekly rise since August 2009.

“Yields are going to remain biased higher, but not in a straight line,” said Kim Rupert, managing director of global fixed-income analysis at Action Economics in San Francisco.

Rupert also cited the rising U.S. deficit and inflation fears as well as a more robust outlook for economic growth as the reasons for the Treasury bond market’s losses.

The benchmark U.S. 10-year Treasury note fell 31/32 of a point in price, driving the yield up to 3.327 percent. The yield is up 31.5 basis points for the week.

Equity markets scraped their way higher, pushing the S&P 500 to its highest level since the week that Lehman Brothers collapsed in September 2008. The Nasdaq Composite closed at nearly a three-year high.

While significant levels were reached, the moves on the day were muted by a stronger greenback squeezing the operating margins for U.S. exporters. That fed into the recent inverse correlation between the currency and U.S. stocks (Read more about the stock market today. ).

Another factor was a decision by China’s central bank to raise lenders’ required reserves by 50 basis points while leaving interest rates on hold. This eased concerns that aggressive policy tightening could slow China’s growth down too much, but at the same time it did keep investors in check.

European shares edged up to a fresh 26-month closing high.

Peripheral European sovereign credit deteriorated on Friday as prices wax and wane while uncertainty remains over whether policymakers can put to rest the concerns the debt crisis is under control.

In the credit markets, the premium that investors demand to hold peripheral government bonds rather than benchmark German debt rose on Friday with investors keeping to the sidelines as the European Central Bank’s bond buying slowed down to a trickle.

The difference between Portuguese and German 10-year yields widened 18 basis points on the day to 346 basis points with traders pointing to little buying interest from the ECB.

The equivalent yield spread for Irish debt widened to 540 basis points, out 9 basis points on the day.

The euro fell (Read more about the trembling euro. ) 0.12 percent to $1.3226. The U.S. Dollar Index (.DXY: ), which measures the dollar against a basket of major trading partner currencies, gave up early gains to trade flat, up just 0.04 percent at 80.104. Against the yen, the greenback rose 0.29 percent to 83.92 yen.

Commodities priced in U.S. dollars weakened on the currency’s gains. Spot gold fell $1.06 to $1,386.20 an ounce, while January U.S. crude oil futures fell 58 cents to settle at $87.79 a barrel.

S&P 500 STAYS ABOVE 1,228

On Wall Street, the bulls took heart when the S&P 500 managed to hold above 1,228, a closely watched technical resistance, for the second straight day.

In April and again in early November, the S&P 500 had “met some significant resistance” when it tried to rise above 1,228 and failed, according to Art Hogan, chief market analyst at Jefferies & Co in Boston. Both of those failed runs by the S&P 500 to top 1,228 were followed by steep declines.

“So closing above there and staying above there is a pretty good sign,” Hogan said.

The Standard & Poor’s 500 Index (.SPX: ) rose 7.40 points, or 0.60 percent, to end at 1,240.40 — its highest close since mid-September 2008.

The Dow Jones industrial average (.DJI: ) gained 40.26 points, or 0.35 percent, to finish at 11,410.32. The Nasdaq Composite Index (.IXIC: ) climbed 20.87 points, or 0.80 percent, to close at 2,637.54, its best finish since December 31, 2007.

Industrial shares led the pack, with General Electric (GE.N: ) up 3.4 percent at $17.72 after it raised its dividend for a second time this year.

The pan-European FTSEurofirst 300 index (.FTEU3: ) of top shares rose 0.16 percent to 1,125.59, its best close since September 2008, aided by the U.S. data and led by automakers.

Japan’s benchmark Nikkei stock index fell 0.7 percent to close on Friday at 10,211.95 due to profit-taking. But the Nikkei was up 0.3 percent for the week.

The MSCI All-Country World stock index (.MIWD00000PUS: ) gained just 0.34 percent.

(Reporting and writing by Daniel Bases; Additional reporting by Chris Reese, Rodrigo Campos, Julie Haviv, Leah Schnurr, Natsuko Waki, Ellen Freilich and William James; Editing by Jan Paschal)

Treasury debt sinks on data; stocks, dollar up